Source: The Economic Times.
How much money did you make last month, Rs 30,000? Do you have any idea how much money you have spent last month or rather how much money is left to spend this month. Don't have an answer? You are not alone. The fact is that every fifth customer is unaware of his/her spending, thanks to the advent of plastic culture. According to industry estimates, credit card default rates stand at 7.5%. The fact is that huge credit card limits and free credit cards have left many Indian customers in a debt trap. But, a systematic plan can enable you to break the shackles of credit card debt. Here are a few tips.
Always pay a little more than the minimum amount due each month. This extra payment over and above the minimum due would go towards the outstanding principal and not just to the interest. This will reduce the outstanding dues over a period of time. It is better to pay the same amount every month even as the minimum amount due declines every month. This would lead to a speedier repayment and save on huge interest outgo.
If you are into multiple debts ensure you pay the heaviest one first. Then start paying the second one as soon as you are through with the first debt. As one debt has been paid off, add the amount you used to pay on that debt to the payment of the next debt even if it is lower than the previous one.
File your bills and always verify the amount of money spent against your credit card statement. More than often you may be billed wrong and if there is any discrepancy, you can alert your credit card company immediately.
ARE YOU INDEBTED TOO?
How much money did you make last month, Rs 30,000? Do you have any idea how much money you have spent last month or rather how much money is left to spend this month. Don't have an answer? You are not alone. The fact is that every fifth customer is unaware of his/her spending, thanks to the advent of plastic culture. According to industry estimates, credit card default rates stand at 7.5%. The fact is that huge credit card limits and free credit cards have left many Indian customers in a debt trap. But, a systematic plan can enable you to break the shackles of credit card debt. Here are a few tips.
- No card, only cash: Replace your credit card with cash. Meet all your expenses only by cash. This will help you curtail unnecessary expenditure and budget your expenses.
- Consolidate your debts: If you are burdened by debts of multiple credit cards, transfer it to one card. It will be easier to manage debt and make timely repayments. Have a look at all your credit cards and identify the one with the lowest interest rate. If you still haven't reached the maximum limit on that card, transfer the higher interest bills to that one. If your entire balance is too large to fit on one low-interest rate card, pay at least the minimum amounts due on all of your cards except one. Then you can direct the majority of your debt repayments into that one credit card and pay it off as quickly as possible.
- Finance a dearer loan: Have you thought of financing a high cost debit with a low cost one? You can try taking loans against your insurance policies, PPF, etc, to repay the credit card loan. Such loans come at an annual rate of 10-12 % because they are secured. If such loans are not available, then try to take personal loans which come at a relatively lower rate of 14-16 %. Then, use the monthly income used to pay the credit card to repay these loans. The savings on interest payments will be substantial.
- Liquidate investments: It is not worth investing your money or holding on to your investments when you have to repay such high debt. The fact is that no instrument fetches such a high interest rate, which would off set the rate at which you repay the loan. You can use your savings. If you leave a huge balance idle in your bank account, you would earn 3.5% interest but, on the other hand, you are servicing a credit card rate at 36%. Sell such investments to pay off the card dues. This is a one time exercise otherwise you would realise that the debt is eating into all your investments, Once this is done, you can use the monthly income to build on your investment kitty.
- Stick to one-card policy: You would probably close down multiple accounts and keep only one for easy maintenance. The same rule applies for credit cards. Keep one card - the one with the best rates and terms - in your wallet and get rid of the rest. Using only one credit card would help you keep a watch on your spending. Even if you breach the credit card limit yet again, you would still service only one debt. Instead, get a debit card for your regular expenses. With debit cards, you can avoid the hassles of carrying hard cash and yet use your money to fund all the needs. Debit card, therefore, reduces the chances of your overspending in bouts of indulgence as it is limited by the funds in your bank accounts.
Always pay a little more than the minimum amount due each month. This extra payment over and above the minimum due would go towards the outstanding principal and not just to the interest. This will reduce the outstanding dues over a period of time. It is better to pay the same amount every month even as the minimum amount due declines every month. This would lead to a speedier repayment and save on huge interest outgo.
If you are into multiple debts ensure you pay the heaviest one first. Then start paying the second one as soon as you are through with the first debt. As one debt has been paid off, add the amount you used to pay on that debt to the payment of the next debt even if it is lower than the previous one.
File your bills and always verify the amount of money spent against your credit card statement. More than often you may be billed wrong and if there is any discrepancy, you can alert your credit card company immediately.
ARE YOU INDEBTED TOO?
- Every fifth customer is unaware of his spending, due to the advent of plastic culture, whose default rates stand at 7.5%
- Meeting all your expenses only by cash is a simple way to avoid debt trap
- Rule of closing down multiple accounts and keeping only one for easy maintenance applies for credit cards too
- If you are into multiple debts of credit card, ensure that you pay the heaviest one first
- Make a point to pay a little more than the minimum amount that is due each month
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